New EPA guidelines: Minnesota on track

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In my last blog, I discussed the disappointing yet legally sound court decision to strike down part of Minnesota’s Next Generation Energy Act. Most known for setting renewable energy and conservation mandates, this lesser-known piece sought to curb state emissions by restricting the import of electricity from new power plants that would raise Minnesota’s overall emissions. The decision highlighted the barriers states face as individual actors when addressing problems – like pollution – that aren’t confined to political boundaries.

Last September, the EPA announced that it would move forward with action to limit CO2 emissions from power plants, marking a first crucial step in bringing much needed federal regulation to guide a coordinated effort to tackle carbon emissions rather than piecemeal state solutions. The first part, also released last September, proposed CO2 emission limits on new power plants, one set for coal, and a separate set for natural gas*. The former would require partial carbon capture, making new coal plants unlikely to be financially viable.

This week, a draft of the second piece of the regulatory framework – emissions regulations for existing power plants – was released, setting a 30% emissions reduction target (as compared to a 2005 baseline) to be met by 2030. Each state has its own individual goal; states that rely heavily on coal have lower goals to meet than those with more diverse and less carbon-intense energy portfolios.

Since this new target applies to existing facilities and varies by state, the EPA has charged each individual state with coming up with a plan to meet its part of the 30% reduction, to be submitted to the EPA no later than June 1, 2016.

Will this new target for existing plants be the federal solution states need? More generally, what are the implications for Minnesota, and the Midwest more generally? A webinar held May 22nd by the Center for Energy Environment entitled “Greenhouse Gas Performance Standards and Energy Efficiency: Minnesota and the Midwest Look Ahead” explored this idea in depth.

Opening with an overview of how Minnesota currently tackles emission and will conform to the EPA’s new standards were Jessica Burdette from the Minnesota Department of Commerce and Frank Kohlasch from the Pollution Control Agency. According to Kohlasch, the new standards will require Minnesota not only to come up with a plan to meet the target, but also demonstrate that its plan can be implemented and enforced – no small task since currently, there are no economically viable “end of pipe” controls for CO2.

The good news is that Minnesota has a good track record with pollution control, having reduced greenhouse gas emissions alone by 13% since 2005. And, as relayed by Burdette, the state has a robust existing framework for demand side energy management – another potential tool for reducing emissions – through laws like the 1.5% conservation mandate and initiatives like the Conservation Improvement Program (CIP).

It may make sense to delegate the responsibility for lowering emissions to state governments. They do, after all, regulate utilities operating within their borders, have a better handle on the local energy system, and have their own pollution and environmental departments, like Minnesota’s Pollution Control Agency. However, the reality is that electricity consumed in Minnesota – or any state for that matter – and corresponding emissions aren’t necessarily produced in Minnesota. As of 2010, Minnesota imported about 26% of its electricity which contributed roughly a quarter of the State’s total emissions.

In fact, decisions on which fuels and generating plants, and how much to use of each, isn’t made at the state level, but is guided by the regional wholesale market. By placing a 30% goal on each state, plans to meet the target would have to ignore the dynamics of the energy system and market that make the actual dispatch decisions.

The result? Despite creating the coordinated action needed to address this cross-border collective action problem, a new challenge could likely arise: states may have to make very costly plant-by-plant modifications and underutilize existing capacity, potentially raising the cost of energy for consumers.

One potential solution, using a market rather than state-based approach, was presented by Jon Brekke, Vice President of Membership and Energy Markets of Great River Energy. The general idea is that if the regional energy market already works to optimize costs while ensuring reliability and efficiency, why not utilize that same market to optimize cost, reliability, efficiency, and emissions?

A good analogy to illustrate the idea is the all-familiar cap-and-trade system. Under this scheme, rather than putting a pollution reduction mandate on each individual firm, a reduction goal is set for an entire area or region. Through a system of credit trading, firms that can cost effectively reduce pollution by a greater than required amount can sell pollution credits to those firms that cannot. This way, the total reduction goal for the region or area is met, but the cost of meeting that goal is optimized over all firms.

Similarly, the EPA could set a goal for a regional wholesale market (often organized under Independent System Operator or ISO). The ISO, as its plan to meet the goal, could determine a carbon price that would shift the market toward less carbon-intense power generation plants since plants using wind, solar, or natural gas, would become more economically favorable. As a result, instead of making plan by plant or utility by utility mandates, plants would compete for a place on the market, taking into account carbon intensity.

Like the recent decision to scrap import-related emissions rules set by the Next Generation Energy Act, Brekke’s presentation demonstrated that controlling emissions state by state, even through top down, EPA rules, is likely not the best solution. Rather than mandating that each state create an emissions reduction plan and meet a specified goal, the EPA should allow greater flexibility to make changes that make economic sense and work to shift the energy market toward less carbon-intense generation.

View the entire webinar free online here.

 

*Coal: 1,100 lb CO2/MWh gross over a 12 operating month period or 1,000-1,050 lb CO2/MWh gross over an 84 month operating for coal plants, and 1,000 lb; Natural Gas: CO2/MWh gross or 1,100 lb CO2/MWh gross for natural gas plants of greater than 850 mmBtu/hr and less than 850 mmBtu/hr, respectively. See EPA Fact Sheet.